Earlier today I posted a note on Visa. You can read that below:
Visa (V) - Elevated Vol and Time Spread
Now Mastercard shows up as well. But I find this one slightly more intriguing. MA also came up on the Calendar spreads between the front two months. But it also is a very interesting candidate for a low vol scan. More on the latter in a bit...
Calendar Custom Scan Details
Stock Price >= $5
Sigma1 - Sigma2 >= 8
Average Option Volume >= 1,000
Industry != Bio-tech
Days After Earnings >=5 <=70
Sigma1, Sigma2 >= 1
The snapshot of the low vol scan is included (below) in case you want to build it yourself in Livevol Pro™.
The goal with the calendar scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.
Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).
We can see how the front month is elevated to the back. The vol difference is about 15 points, with Dec IV up more than 12 points today. Note also the upside skew in Dec. The 280 calls are priced at about 49 vol.
Now we can turn to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
Here's where it gets interesting. What I'm interested in here is the vol portion. Check out how high IV30™ is relative to the short-term historical vol (HV20™) and the long-term historical vol (HV180™). Specifically:
Jan IV: 29.71
IV30™: 29.71
HV20™: 34.51
HV180™: 33.90
Dec IV: 45.61
So, hypothetically, vol below ~30 (i.e. a few points less than the two HV measures) would be "cheap" and vol over ~37 (i.e. a few points more than the two HV measures) would be "expensive." In this case, both can be done. I have highlighted in yellow on the vol chart, the two vol levels for Dec and Jan options.
Finally, let's look to the Options Tab (below).
Potential Trades to Analyze
1. Sell the MA Dec 260 straddle @ $9.70 (~42 vol)
Buy the Jan 260 straddle for $20.30 (~30 vol).
Pay $10.60.
Note that the one-week Dec straddle is priced at ~ 47% of the six-week Jan straddle. Oo...
2. Do #1, but sell the Dec 240 put @ $0.65. This nets a total debit of $9.95, which means the 1-week Dec straddle is sold @ ~50% of the 6-week Jan straddle. Of course, if Dec shows a large move (below $240), those $0.65 aren't gonna feel like a very good sale (regardless of the nearly 60 vol level).
3. Do #1 and sell the Jan 220 put @ $1.15. This yields a total debit of $8.80 and is naked downside until Dec expo.
4. For you risk lovers:
Do #3 and also sell the Jan 280 calls which have a reverse upside skew (~49 vol) @ $0.49. This yields a net debit of $8.31.
Just to be clear, I don't think spreading the time in both V and MA makes sense. No need to double down. Another note: Ceteris paribus, selling a $9.70 straddle in a $260 stock is the equivalent of selling a $0.97 straddle in a $26 stock... Just fyi...
This is trade analysis, not a recommendation.
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